2. Introduction
• A Non-Performing Asset is a debt
obligation or a loan or advance for
which the borrower has not paid
principal or interest repayments to the
designated lender for a period of 90
days.
• Generally, the measurement of health
and financial condition of a bank is
with the proportion of non-
performing or bad assets with it.
3. The NPA’s can be differentiated on
the basis of the repayment status in
its terms into following categories:
• Standard asset: Asset which carries no more
than normal risk and does not disclose any
credit problems.
• Substandard Asset: An asset that is NPA for a
period of less than or equal to 12 months.
• Doubtful Asset: An asset that is a substandard
asset for a period of more than 12 months.
• Loss Asset: An asset that is NPA for a period of
more than 36 months.These assets are to be
written off.
4. Issues that bank face with more number
of NPA’s are:
• Profitability
• Reduce in the cash flow which in turn leads
to decreased earnings and disturbance in
the budget plan.
• Liability Management
• Capital Adequacy
• Asset (Credit) Contraction
• Shareholders’ Confidence
• Public Confidence
5. Why assets become NPA? (Internal Factors)
• Funds borrowed for a particular purpose but not
use for the said purpose.
• Project not completed in time, poor recovery of
receivables and excess capacities created on non-
economic costs.
• In-ability of the corporate to raise capital through
the issue of equity or other debt instrument from
capital markets.
• Business failures.
6. • Diversion of funds for expansion modernization
setting up new projects helping or promoting sister
concerns.
• Wilful defaults, siphoning of funds, fraud, disputes,
management disputes, miss-appropriation etc.
• Deficiencies on the part of the banks viz. in credit
appraisal, monitoring and follow-ups, delay in
settlement of payments etc.
7. External Factors
1. Sluggish legal system -
Long legal tangles
Changes that had taken place in labour laws
Lack of sincere effort.
2. Scarcity of raw material, power and other
resources.
3. Industrial recession.
8. • Shortage of raw material, raw materialinput price escalation,
power shortage, industrial recession, excess capacity,
natural calamities like floods, accidents.
• Failures, non payment over dues in other countries,
recession in other countries, externalization problems,
adverse exchange rates.
• Government policies like excise duty changes, Import
duty changes etc.,
9. Top five sectors with most
exposure to banks NPAs
• Five sectors alone account for 60% of the total stressed
assets on the books of banks in India
• These sectors are steel, power, telecom, infrastructure and
textile.
• By end of FY17, banks had gross non-performing assets
(NPAs) of 9.5% of gross advances valuing up to Rs 7.65 lakh
crore.
• GNPAs of a total 21 PSBs stood at Rs 6.19 lakh crore, rising
by 19.96% compared to Rs 5.16 lakh crore in the similar
period of the previous year
14. Effects of NPAs
• Lenders suffer lowering of profit margins.
• Higher interest rates by the banks to maintain the profit
margin.
• Redirecting funds from the good projects to the bad
ones.
• As investments got stuck, it may result in
unemployment.
• Investors do not get rightful returns.
• NPAs related cases add more pressure to already
pending cases with the judiciary.
15. Measures Taken
• The Debt RecoveryTribunals (DRTs) – 1993
• Credit Information Bureau – 2000
• SARFAESI Act – 2002
• Mission Indradhanush – 2015
• Sustainable structuring of stressed assets (S4A) –
2016
• Insolvency and Bankruptcy code Act-2016
• Bad Banks – 2017
16. Actions Taken by RBI
• There are about Rs. 12 lakh crore of stressed assets
in the nation’s banking framework.
• Asset Quality Review (AQR): By RBI in 2015, this
pushed the banks towards straightforward
acknowledgement and characterisation of NPAs in
all cases.
• National Companies LawTribunal(NCLT): By RBI,
most cases will be alluded to the NCLT by October
2017, most resolutions will be set up by June 2018.
• The bad loan circumstances should be mitigated by
2019.
17. Conclusion
• To make a comprehensive administrative structure for
FICO scores alongside an umbrella controller.
• To limit the chance of administrative arbitrage
• Banks moving towards genuine hazard based evaluating in
this manner urging borrowers to get themselves rated.
• The Financial Stability Board (FSB) which incorporates
individuals from G20, had set up the Implementation Group
on Credit Rating Agencies.
• The FSB, in its as of late distributed peer review report on
national authorities; execution of the FSB Principles for
Reducing reliance on CRA Ratings finds that Indian
administrative regime has set up frameworks and
strategies to create internal credit risk evaluation and due
constancy by the market members.